Recent accounting changes implemented by the Chartered Professional Accountants of Canada, effective for fiscal years beginning on or after January 1, 2021, require retractable or mandatorily redeemable shares ("ROMRS") issued in a tax planning arrangement be classified in the issuer corporation's financial statements as liabilities, rather than outstanding equity shares.


Recent changes implemented by CPA Canada will affect holders of preferred shares of a private corporation that carry a right to require the redemption on demand of those shares if they were issued as part of a “tax planning arrangement”[i]. The amendments (which presently are in effect) "provide new conditions that must be met in order for ROMRS issued in a tax planning arrangement to be classified as equity…”.  In reality, in our view, these "new conditions" will rarely be able to be met - with the result that retractable preferred shares that are issued by many private corporations in Alberta to achieve legitimate tax planning objectives (including estate freezes and non-arm's length tax-deferred transfers of property in which taxable gain has accrued) that have long existed in Canada and are broadly accepted by both provincial and federal taxing authorities as constituting legitimate tax planning could be seriously jeopardized.

Our Recommendations

    1. Amends the definition of “liabilities” currently set forth in subsection 35(4) of the ABCA to add the following wording at the end of the current definition:

    “…and for the purposes of this Act, a validly issued and outstanding share in the capital of a corporation shall constitute equity, and not a liability, of that corporation notwithstanding the enactment or establishment by any non-governmental body, including one that governs or regulates any profession, of any rule or provision to the effect that any such share shall constitute a liability of the corporation”.

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If you have any questions, contact Dana Severson at or (780) 425-4180 ext. 2.